Property wealth could ‘unlock’ as long as ten years of additional ‘comfortable’ retirement if 40% of equity were to be released from homes to make up the shortfall between current pension income and recommended ‘moderate’ retirement standards set by Pensions UK.
A report from Fairer Finance, commissioned by the Equity Release Council suggests, depending on location, on average the median value of pensions is between half, and one third of the ‘moderate’ retirement income of £31,700 set by Pensions UK. In the North East, the average annual pension income for one person, after housing costs are deducted, is £16,380; leaving a shortfall of £15,320. In the South East, the shortfall is £12,460. But where property prices are higher, releasing 40% equity in the property could be the equivalent of £153,200 in the South East; providing a further 12 years of top up income for retirement. In the North East, where property prices are lower, the £65,600 released from the average property value of £164,000 is £65,600; funding an additional 4 years of shortfall.
“The UK’s retirement landscape is changing fast” said Jim Boyd, CEO of the Equity Release Council. “Many people have more property wealth than pension wealth and property will form an increasingly important asset to fund longer lives in retirement.”
| Region | Weekly Net Pension Income (Single, After Housing Costs are deducted) | Avg. Annual Pension Income (Single, After housing costs are deducted) | Shortfall between avg. income and moderate retirement (£31,700) | Median House Price | Equivalent of 40% equity |
| North East | £315 | £16,380 | £15,320 | £164,000 | £65,600 |
| West Midlands | £320 | £16,440 | £15,260 | £247,000 | £98,800 |
| North West | £325 | £16,900 | £14,800 | £212,000 | £84,800 |
| Yorkshire & Humber | £326 | £16,952 | £14,748 | £204,000 | £81,600 |
| London | £330 | £17,160 | £14,540 | £561,000 | £224,400 |
| East Midlands | £339 | £17,528 | £14,172 | £239,000 | £95,600 |
| Scotland | £343 | £17,836 | £13,864 | £192,000 | £76,800 |
| East of England | £344 | £17,888 | £13,812 | £338,000 | £135,200 |
| South West | £366 | £19,032 | £12,668 | £302,000 | £120,800 |
| South East | £370 | £19,240 | £12,460 | £383,000 | £153,200 |
(Assumes 40% equity released, in line with current market levels among later life lending sector where consumers typically can release up to 40% LTV. For illustrative purposes, excludes fees/interest)
| Region | Equivalent of 40% equity | Shortfall between avg. income and moderate retirement (£31,700) | Years equity release could top up current retirement income to moderate retirement income | Full additional years funded to a moderate level of retirement income |
| London | £224,400 | £14,540 | 15.4 | 7 |
| South East | £153,200 | £12,460 | 12.3 | 4.8 |
| East of England | £135,200 | £13,812 | 9.8 | 4.3 |
| South West | £120,800 | £12,668 | 9.5 | 3.8 |
| East Midlands | £95,600 | £14,172 | 6.7 | 3 |
| West Midlands | £98,800 | £15,620 | 6.3 | 3.1 |
| North West | £84,800 | £14,800 | 5.7 | 2.7 |
| Yorkshire & Humber | £81,600 | £14,748 | 5.5 | 2.6 |
| Scotland | £76,800 | £13,864 | 5.5 | 2.4 |
| North East | £65,600 | £15,320 | 4.3 | 2 |
But too few people are exploring it said Boyd, with barriers including normalising the use of housing wealth in retirement through public interest campaigns; create a better view of wealth for people through the pensions dashboard, which once complete should look to build in property wealth to give consumers a clear view of their financial position and options as they enter later life; and reform of later life advice regulation to break down the current silos.
Additionally there should be more and better supply of ‘suitable retirement properties, and consideration given to reducing the cost of home moving in later life with incentives and exemptions added Boyd:
“Our findings shine a light on the potential for housing wealth to provide better retirements for people across the UK, especially in regions like Yorkshire and the Humber and the North West, where pension incomes are lower but property wealth remains strong. Millions of older homeowners are asset-rich but income-poor, and are often unaware that their home could be the key to a more secure retirement.
“The estimate that people may unlock £23bn a year by 2040 highlights how transformative the use of property wealth could be for our rapidly ageing population and for the wider economy by increasing older people’s spending power. We now need to break down the barriers to using housing wealth confidently and safely, from outdated perceptions to fragmented advice.
“This isn’t about pushing people in one direction. It’s about giving everyone access to trusted guidance and flexible options, so they can make informed choices that work for their circumstances, wherever they live.”
James Daley, managing director of Fairer Finance, said:
“The relaunch of the Pensions Commission shows that this Government understands the severity of the impending later life crisis. While the Commission will hopefully unlock new ways to get people saving more for retirement, its’ actions will come too late for those who are already approaching later life without adequate provision.
“For many in this generation, using their housing wealth will be a vital lifeline to support a decent standard of living in later life. But there’s still work to be done to ensure people can access their housing wealth.
“It’s crucial that the Government does not lose sight of the problem facing the next generation of retirees, while it looks for a solution for future generations. Our report makes a range of pragmatic policy suggestions to ensure more people can use their housing wealth in retirement – and we urge Ministers to act on these as soon as possible.”
